22 BUSINESS
26 OCTOBER 2017
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Buy to Let investors: Are you aware of the imminent changes to mortgage underwriting? BY MARC OVITS
BA (HONS) APFS CERT PFS (DM)
Why Special Purpose Vehicles are in vogue for Buy-to-Let investors From 6th April 2017 the Treasury began phasing-in changes on Buyto-Let (BTL) investors, which will eventually mean they can only claim tax relief on finance costs - including mortgage interest - at the basic rate of 20%, rather than their marginal rate. This means that higher-rate and additional-rate taxpayers will pay considerably more tax, and has led to a massive increase in the use of Special Purpose Vehicles (SPVs) to buy BTL properties1. Why buy BTLs through a SPV? A SPV is usually a limited company, set up purely to hold property. Therefore corporation tax (at a rate of 19% since 6th April) is payable on the rental income - instead of 40% / 45% if it was assessed as personal income for a higher-rate / additional-rate taxpayer: Some 77% of BTL purchases are now being made via a corporate vehicle - such as a SPV - according to data from independent broker
Mortgages for Business1 in April. Setting-up a SPV can be done online for as little as £202, and buying a property through it is a similar process to buying it as an individual. Furthermore, customers have an increasing range of mortgages to choose from, as this type of arrangement becomes more popular. Any mortgage liabilities on BTL properties held within a SPV will be those of the SPV (i.e. a company). Therefore if you want to protect against the impact of a death or critical illness ‘business loan protection’ will be required. Considerations for protecting Buy-to-Let portfolios Inheritance tax (IHT) on SPVs An SPV is a company - so there’ll be Business Relief (BR) available after two years, and the shares in the company can be passed on completely free of IHT, right? Sadly not! That would be far too easy, and I’m afraid the taxman has thought of that. BR can’t be claimed if the business mainly deals with land or buildings, or if it only generates investment (rather than trading) income3. Clearly property letting is firmly caught within this net. Unless substantial other services are provided - e.g. those of a hotel - BR won’t be available, so there remains a need for IHT cover on those with an estate (including the net value of their BTL properties) in excess of the nilrate band. Even if the SPV is held outside
the UK, if it’s the equivalent of a UK close company (broadly meaning it is controlled by five or fewer persons), the shares will become liable to IHT once the Summer Finance Bill receives Royal Assent as expected later in the year. Critical illness cover The biggest issue I hear regarding providing cover on BTL investors is that of critical illness cover (CI). They need it but BTL property owners are usually older, and therefore traditional CI is often too expensive. Add into the mix that their children are likely to have flown the nest, and the children’s cover that is included by default with most CI contracts becomes pointless. A solution? Consider the more economical cover available through AIG’s Key3 Critical Illness Insurance: • It covers the conditions older people worry most about - cancer, heart attack & stroke • These three conditions accounted for 80% of AIG Life’s claims in 20154 • There is no children’s CI cover - you don’t pay for benefits they no longer need • Broadly, the discount available on Key3 gets wider the older the life assured Tenants – Generation Rent People assume that renters don’t need life insurance, because they’ll be single with no liabilities. However, tenants are no longer all in their 20s and single - which may have largely have been the case in decades past. We now have ‘Generation Rent’ - individuals who are struggling to get on the property ladder with property prices so high. They’re as likely to be in their 30s as in their 20s, and may have
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children. And this means that life insurance (and indeed family income benefit) may well be needed too. The Prudential Regulatory Authority’s new Buy-to-Let rules Are you aware of the new underwriting standards to be imposed on Buy-to-Let (BTL) mortgages from 30th September5 ? What are the new rules? The “minimum expectations”, as the Prudential Regulation Authority (PRA) refers to them, can be broadly summarised as follows: Affordability assessments should account for a borrower’s costs, verify their personal income, and suitably ‘stress-test’ against the effect of possible future interest rate increases. How would you could cope if you were to suffer a critical illness, or be unable to work due to long-term illness or injury? Your costs can be protected with life cover in the form of a Family Income Benefit plan, and your income income with Critical Illness Cover and/or Income Protection. Lending to ‘portfolio landlords’ - to be defined as those with four or more mortgaged BTL properties - should be assessed using a specialist underwriting process. What happens to the income if no one is alive or someone suffers a critical illness preventing them from being able to manage the properties ? Loans to small businesses - the provisions which reduce the capital requirements on loans to small businesses by around 25% should NOT be applied for BTL borrowing purposes. What happens if one of the company owners dies or suffers
The Writer is the owner and Managing Director of Alpha Wealth Management Limited. Drawing on over twenty years’ experience in financial services, Marc helps private clients, businesses, charities, and trusts optimize their finances. He is a Chartered Financial Planner providing ‘Independent’ financial advice. Prior to being a financial adviser, Marc was a Director at several global investment banks, providing investment advice to Europe’s leading institutional investment and pension fund managers. For advice on inheritance, investment, protection, or retirement planning, please contact Marc on 020 8203 6920 or 07866 503 898 or marc@alphawm.co.uk.
from a critical illness ? Is business protection required ? 1.www.mortgagesforbusiness. co.uk/news-insight/2017 2.www.telegraph.co.uk/finance/ personalfinance/investing/ buy-to-let 3 . h t t p s : / / w w w. g o v. u k / b u s i ness-relief-inheritance-tax/ what-qualifies-for-business-relief 4. Source of 80% stat (or have we got a 2016 stat now?) 5. Bank of England, 2016
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10 Facts about Shabbat
Shabbat UK build - up photo collage
1. Shabbat comes in at sunset Friday night and goes out after three stars appear in the sky on Saturday evening. This makes Shabbat 25 hours long. 2. We welcome Shabbat with two candles. These two candles stand for “Zachor”- “to remember” and “Shamor”- “to keep”. Those are the two ways in which the Torah states that we should keep Shabbat. 3. Shabbat is a reminder to the creation of the world. We remember that Hashem ‘rested’ on that day and so do we! 4. On Shabbat, there are 39 main things that we are not allowed to do. These are called the 39 malachot. They are derived from the time when the Jewish People built the Mishkan (Sanctuary). There were 39 main acts of building that had to be done and as we rest on Shabbat, we stay away from these acts of building. 5. It is said that Shabbat is 1/60th of the feeling a person gets in Gan Eden, the world to come. 6. On Shabbat, we eat three meals: the first being on Friday evening, the second early Shabbat afternoon and the last one later on before the end of Shabbat. We start the first two meals with “Kiddush”, which literally means “to sanctify”. We sanctify our meals, by adding a measure of spirituality (a blessing over a cup of wine) to the physical (the food). 7. Before we start the Friday night meal, there is a custom to sing Shalom Aleichem (written by Kabbalists in the early 17th century) and Eishet Chayil (Proverbs 31:10-31). Eishet Chayil is commonly known to be a praise on the woman, the wife, the mother. However some interpretations say that Eishet Chayil describes the Torah and others say it speaks about the qualities of Hashem’s divine presence. 8. At each meal a blessing is said on two loaves of braided bread. When the Jews were in the desert (after they left Egypt) they received mannah, straight from Heaven. On Fridays, they received a double portion in the honour of Shabbat, hence our “double portion” of bread, two loaves instead of one. 9. Many people of Ashkenazi tradition eat a dish called “cholent” on Shabbat afternoon. This is made out of a combination of meat, potatoes, beans and barley which has been simmered overnight. The opinions differ as to where the name of this traditional dish comes from. One opinion is that it comes from the French “chaud lent”- literally translated as “hot, slowly”, referring to the long hours the dish is kept on the fire for. 10. After Shabbat, we hold a ceremony called “Havdala”. This is to say goodbye to Shabbat. One of the rituals is to smell nice-smelling spices. These spices give you a good feeling, to lift your spirits after Shabbat has gone out.
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IJDS children write about ShabbatUK What it means to keep Shabbat By Ahron Asher Moss Shabbat is the seventh day of the week, the day of rest. The idea of Shabbat comes from the Torah; after Hashem finished creating the world we take a break and take time to rest and have fun with the family. At Shabbat UK we hope that if every Jew in the world keeps Shabbat the Mashiach will come and bring back everyone to Jerusalem. For Jewish people, Shabbat is a day where we take time to pray to Hashem, to have a nice dinner with our family and rest. “Just one Shabbat and we’ll all be free!”
Shabbat UK Challah bake By Noa Friedmann and Jacob Tapnack At the challah bake everyone enjoyed themselves making delicious challahs in the shapes of our choice. Some people there had never baked a challah before which made it even more interesting and fun. We got taught how to plait in many different ways. It was a lovely sight, seeing all those hands kneading dough together. It was funny seeing everybody getting so messy and dirty, the smell was amazing. There were so many people joining together and it gave it such ruach. At the end we all made a bracha together which was fantastic. Following on from this amazing experience here are some interesting facts: •This was the first time that the IJDS has held a Challah make. •Tickets were sold out within 48 hours. •176 people attended this wonderful event. •The ruach was incredible and achdut was palpable. •The event was organised by the PTA and sponsored by IJDS families.
PHOTO CREDITS. MARC MORRIS
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Shabbat UK concert By Tammy Glass and Dalia Cohen The Shabbat UK concert was really fun. There was lots of singing and dancing. With over 19 schools participating. The atmosphere there was exciting and joyfull and with smiles on everyone’s faces, it was great. At one point in the concert the Chief Rabbi, Rabbi Mirvis came on the stage and called out Shabbat UK Shalom to all the schools. We sang some songs about Shabbat and during Dror Yikra we did the cup song . “The Shabbat UK concert was really fun with a nice atmosphere. I really enjoyed it!” said Libby Peston. THEJEWISHWEEKLY.COM
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